Top Debt Mistakes to Avoid

From credit cards to student loans, there are tons of different ways to get wrapped up in debt.

Getting out of it can seem intimidating, but avoiding these common debt mistakes will help you do so as quickly and smoothly as possible.

1. Falling Into Credit Card Debt

What we mean: Don’t spend beyond your means every month and depend on your credit card to make up the difference.

Why: Using credit cards for everyday stuff like groceries and gas can land you reward points and even cash back. And cards are essential for things like booking a flight. But lingering credit card debt is especially nasty, because the interest, which is generally high, is added to your existing balance every day.

How to avoid it: Only pull out the plastic if you’re positive you can and will pay off the balance at the end of the month.

Already made this mistake? You’re not alone. Collectively, Americans owe more than $800 billion in credit card debt. The first thing to do is to stop charging and digging yourself deeper into debt. You can stop the cycle by setting up a cash budget.Then, pay off your cards one by one, starting with the one with the highest interest rate.

2. Taking on Debt for Things Other Than a Car Loan, Student Loan or Mortgage

What we mean: If you ever borrow money, it should be for a big purchase that represents an investment in your future, and you should only take it on when it makes sense for you.

Why: You’ll likely have to take out loans if you’re planning to buy a house or go back to school. And these purchases will often pull their own weight, by growing in value or increasing your earning power, making them “good debt.” In contrast, amassing “bad debt,” funds borrowed for purchases that decrease in value, can jeopardize your financial security.

How to avoid it: Don’t borrow to live a lifestyle that’s out of your reach. Never fall into credit card debt or take out a loan to fund everyday expenses like groceries or gas—or that “once-in-a-lifetime” Iceland trip. Instead, reserve debt for big financial moves that will provide you with value in the long run. While car loans are technically “bad debt” since cars depreciate in value as soon as you drive them off the lot, they are a necessity in some places. If you have to take out a car loan, make it as small as possible by paying as much as you can in cash or buying used.

Already made this mistake? Stop adding to the bad debt you’ve accumulated, and start getting rid of it. Reign in your spending with a budget that you can stick to,which should also help you find some extra cash for your monthly repayments.

3. Paying Late—or Failing to Pay at All

What we mean: Always make all your payments on time, and, whenever possible, in full.

How to avoid it: Pay at least the minimum on all your payments each month, and ideally more. Don’t trust yourself to remember? For loan payments that stay the same each month, set up automatic payments with your bank. At the very least, set up a reminder of your payment due date on your calendar.

Already made this mistake? If you’re usually on time but are struggling this month, you might be able to waive a late fee by giving your lender a heads up. But if you’ve got a history of late payments, the only way to begin cleaning up your credit report is to make up the payments you owe and start paying at least the minimum, on time, every month.

4. Paying Only the Minimum

What we mean: If you can’t make your payment in full on any type of debt, pay as much as you can.

Why: In a 2012 report from the FINRA Investor Education Foundation, 42% of women reported paying just the minimum on their credit card bill. That smaller payment (whether for credit cards, student loans or any other kind of debt) can be tempting. But in the long run, it will cost you a lot of money.

How to avoid it: Try to pay your credit card in full every month. If you need to carry a balance, keep it as low as possible. For non-credit card debt, such as student loans, pay as much as you can over the minimum to shorten the lifetime of your payments (and reduce the interest you pay).

Already made this mistake? If you’re paying just the minimum, redo your budgetso that you can increase your payments. (See how much paying just the minimum is costing you at Bankrate.com.) If you aren’t finding a lot of room in your budget now, begin with whatever is possible. Then, lower your expenses (with our free Cut Your Costs Bootcamp!) and look for ways to earn extra money so you can increase your payments.

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5. Trying to Get Out of Debt Without a Budget

What we mean: Increasing your payments will help you get out of debt, but only if you’re not accruing more at the same time.

Why: The only way out of debt is to stop living beyond your means, and the only way to stop living beyond your means is to stick to a budget. Without a budget that shows you how the hard numbers work out, you may fall victim to “mental accounting,” a problem that crops up when you mentally allocate a certain sum of money (let’s say $500 in freelance income) to several debts or goals at once.

How to avoid it: First, get a budget! You can do that right here. Second, if extra income comes in, write down exactly what it will go toward so you don’t get ahead of yourself and think it will help pay for your credit card debt, your student loan debt and your vacation in Sicily. Most important, be honest about what you can afford to do. An ambitious plan is good, but unrealistic goals can be discouraging.

Already made this mistake? Make sure your budget accounts for your debt payments—and that it allows you to pay more than the minimum toward your debts.

6. Trying to Get Out of Debt Without a Clear Plan

What we mean: With a clear plan, you can create a timeline showing when each of your debts will be paid off. If you can’t come up with that timeline, your plan isn’t quite clear yet.

Why: Debt is not easy to get rid of. The kind of inattention that often gets people into credit card debt can also prevent them from getting out. If your problem is loans, the payoff period may be long, so a plan that allows you to track your progress will help keep you from giving up.

How to avoid it: Set up a plan to pay off what you owe, putting your highest interest-rate credit card debt first. Pay as much as you can toward it every month, while paying the minimum on all the other debts. Use this calculator to find out how long it will take to pay that off. After you’ve paid off your top debt, prioritize paying your card with the second-highest interest rate. The same amount you were sending every month toward the first debt will now go toward the second-highest interest rate debt, and you’ll continue to pay the minimum on all the others. Continue this method until all your debts are paid off. With the calculator above, you should be able to set up a timeline to keep track of your progress and figure out when you’re in the clear.

Already made this mistake? Get on track! It’s never too late to start planning.

7. Putting Credit Card Debt on a Back Burner

What we mean: Paying off your highest interest-rate debt first is a good idea. But paying off credit card debt is even more important.

Why: According to credit information firm TransUnion, more than 17% of consumers juggling a car loan, a credit card and a mortgage choose to miss payments on their credit card first. But unlike fully amortized loans like a 30-year mortgage, where you eventually pay off the principal plus interest in regular installments, credit card debt is revolving. This means that If you don’t pay off your balance in full, the amount you owe (and pay interest on) grows as interest accrues. So even if your car loan charges more interest than your credit card, take care of the latter first.

How to avoid it: When it comes to paying off debt, tackle credit cards first, even if they appear to charge lower interest.

Already made this mistake? Devote all your funds to getting rid of credit card debt, even if you have to pay the minimum on your other debts. Start with the card with the highest APR and move down. In the meantime, don’t add to your debt by charging anything new.

8. Neglecting to Ask Your Lender for Help

What we mean: Don’t underestimate the power of a phone call or meeting, even in the digital age.

Why: If you talk to your lender about your financial situation, you may be able to work out a solution, like a lower interest rate or a different payment plan. That’s preferable to stopping payments, for both you and your lender. According to The Nilson Report, about 2.7 million Americans received some kind of credit card debt relief in 2008.

How to avoid it: If you’re overwhelmed by monthly payments, pick up the phone. Have an explanation ready, introduce yourself as a loyal customer, and ask for help. Be friendly, not adversarial.

Already made this mistake? It’s never too late to try. Your creditors may seem like the last people in the world you’d want to talk to, butcontact them to see if you can negotiate a better deal. If it looks like you’ve hit a wall, ask to talk to a supervisor or someone with the authority to help you out.

9. Opting for a Repayment Plan That Drags Out the Length of Your Loan

What we mean: Some federal student loan repayment plans (like an “extended” or “graduated” plan) allow you to make smaller monthly payments. Don’t choose these.

Why: Student loans can feel scary. In fact, a quarter to a third of borrowers are late or delinquent on their first student loan payment ever, according to college financial-aid site FastWeb. Ultimately, though, these extended or graduated plans will increase the cost of the loan.

How to avoid it: Stick with the original loan payment terms. If you’re finding the loan payment amounts difficult to manage, look for ways to cut other costs or to increase your income before you sign on to an agreement that will have you paying thousands extra in interest on your student loans.

Already made this mistake? You can always switch back to the standard plan. Contact your loan servicers to adjust your repayment method and see what other options are available to you.

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LearnVest Planning Services is a registered investment adviser and subsidiary of LearnVest, Inc. that provides financial plans for its clients. Information shown is for illustrative purposes only and is not intended as investment advice. Please consult a financial adviser for advice specific to your financial situation. LearnVest Planning Services and any third-parties listed, discussed, identified or otherwise appearing herein are separate and unaffiliated and are not responsible for each other’s products, services or policies. LearnVest, Inc. is wholly owned by NM Planning, LLC, a subsidiary of The Northwestern Mutual Life Insurance Company.